An Inexact Science

IF YOU WOULD'VE TOLD ME - I've been in and out of some short-term trades the past several days, but it continues to be rather quiet for my book. As you all know, I continue to hold my core long position in AUDNZD, with the market refusing to carve out that much anticipated bottom just yet. I am long 1.0215 and not concerned in any way with the position, waiting patiently for the bullish reversal. Still, I have to say, I was a little perplexed with the price action on Monday. If you would have told me China would cut it's RRR 100bps and New Zealand inflation data would come in softer than expected, I would never have guessed the AUDNZD market would be lower on the day. Clearly, the move lower can be rationalized and explained in many ways. But on the surface, with those two developments, I thought it quite surprising to see the market trade lower and back below 1.0100. But this is the nature of markets. If you do your homework and come up with a good idea, there is never a guarantee the idea will work out at all, and even if it does work out, there is no guarantee on timing.

STANDING STRONG - Yet I maintain my strong bullish outlook for the AUDNZD market, as I believe much of the RBA dovishness has already been priced in, while there is still plenty of accommodative RBNZ that has yet to be priced. Even if we look at the economic data, recent Aussie data has been rather solid (very impressive employment report last week), while an ongoing slide in the dairy sector, overheating NZ housing market and now softer NZ inflation print, should all be supportive of a higher AUDNZD rate. Moreover, with the New Zealand Dollar still linked to performance in equities, I believe any sign of capitulation on this front, will most certainly lead to some serious Kiwi outflows. Throw in recent comments from ex-currency trader NZ PM Key (see film below and enjoy) expressing concern over the Kiwi strength against its Aussie cousin, and I don't believe it will be much longer before this trade gets going. It seems the market doesn't want to believe it at the moment. But that's ok. I'm more than happy to wait.